Boeing vs Airbus
Airbus vs. Boeing Case Analysis
What would be the value of a new VLCT to both companies?
In order to value the market for VLCT, we constructed a financial model using minimal assumptions and no outside data (See Exhibit 1).
In terms of the qualitative benefits for both: * Monopoly status on VLCT market * Douglas eliminated as competition * Significantly raise barriers for new industry entrants
MAJOR ASSUMPTION: This evaluation of VLCT based on each company developing the aircraft independently and without competition. | Value Added | Airbus | * The development of the VLCT must match market size (hub-and-spoke model) * Decrease cost per passenger of hub travel (economies of scale) * Increases demand for smaller planes to operate “spokes” * New segment in product line (VLCT) * Estimates demand at 1000 VLCT in the next 20yrs (~$2 trillion in revenue) | Boeing | * Monopolize VLCT market * Estimates demand at 250 VLCT in the next 20yrs (~$500 billion in revenue) * Lower cost alternate VLCT – Develop 747 stretch (@$4-6B vs. $5-20B) |
If you were Airbus, how would you respond to Boeing? Should Airbus collaborate with Boeing in the development of the VLCT? | | Airbus | | | Develop VLCT | Don’t Develop VLCT | Boeing | Develop VLCT | Massive losses for both (-,-) | Continued monopoly for Boeing, no gains for Airbus(+,0) | | Don’t Develop VLCT | Duopoly in the VLCT market (0,+) | Boeing maintains VLCT monopoly, no gains for Airbus (0,0) |
* Doesn’t make sense for Boeing because market isn’t there (need 400 to break even yet market size is capped at 300) * Substitute (cannibalization) of 747’s (which comprise 70% of Boeing’s revenue)
WHY AIRBUS SHOULDN’T DEVELOP VLCT WITH BOEING AND WHY THEY SHOULD DEVELOP THEIR OWN * Bigger share of PIE if developed alone * Retain technology IP and forge relationships with key suppliers * Start from scratch (anyways) – design to tailor to airline’s
What would be the value of a new VLCT to both companies?
In order to value the market for VLCT, we constructed a financial model using minimal assumptions and no outside data (See Exhibit 1).
In terms of the qualitative benefits for both: * Monopoly status on VLCT market * Douglas eliminated as competition * Significantly raise barriers for new industry entrants
MAJOR ASSUMPTION: This evaluation of VLCT based on each company developing the aircraft independently and without competition. | Value Added | Airbus | * The development of the VLCT must match market size (hub-and-spoke model) * Decrease cost per passenger of hub travel (economies of scale) * Increases demand for smaller planes to operate “spokes” * New segment in product line (VLCT) * Estimates demand at 1000 VLCT in the next 20yrs (~$2 trillion in revenue) | Boeing | * Monopolize VLCT market * Estimates demand at 250 VLCT in the next 20yrs (~$500 billion in revenue) * Lower cost alternate VLCT – Develop 747 stretch (@$4-6B vs. $5-20B) |
If you were Airbus, how would you respond to Boeing? Should Airbus collaborate with Boeing in the development of the VLCT? | | Airbus | | | Develop VLCT | Don’t Develop VLCT | Boeing | Develop VLCT | Massive losses for both (-,-) | Continued monopoly for Boeing, no gains for Airbus(+,0) | | Don’t Develop VLCT | Duopoly in the VLCT market (0,+) | Boeing maintains VLCT monopoly, no gains for Airbus (0,0) |
* Doesn’t make sense for Boeing because market isn’t there (need 400 to break even yet market size is capped at 300) * Substitute (cannibalization) of 747’s (which comprise 70% of Boeing’s revenue)
WHY AIRBUS SHOULDN’T DEVELOP VLCT WITH BOEING AND WHY THEY SHOULD DEVELOP THEIR OWN * Bigger share of PIE if developed alone * Retain technology IP and forge relationships with key suppliers * Start from scratch (anyways) – design to tailor to airline’s